Grayscale Bitcoin [BTC] Trust Fund and Understanding the VWAP Ratio

Grayscale Bitcoin [BTC] Trust Fund and Understanding the VWAP Ratio

Grayscale’s Bitcoin [BTC] Trust Fund dates back to 2013, it is a regulated trust fund that is available only to ‘accredited investors’. Grayscale’s GBTC price discovery makes takes into account the 24-hour trailing VWAP indicator to calculate the NAV.

Net Asset Value: The NAV of the Trust Fund is simply the value of the underlying asset compared to the shares issued. The shares of a particular index are calculated depending on the number of shares issued and the total holdings.

Grayscale offers 9 cryptocurrency funds on Bitcoin [BTC], Bitcoin [BCH] Cash, XRP, Ethereum [ETH], Litecoin [LTC], Ethereum Classic [ETC], Stellar [XLM], and Zcash [ZEC].

It also offers a mixed digital large-cap fund which is comprised of Bitcoin (BTC), Ethereum (ETH), XRP, Bitcoin Cash (BCH), Litecoin (LTC) in varying amounts.

Grayscale Products

Net Asset Value: The NAV of the Trust Fund is simply the value of the underlying asset compared to the shares issued.

We notice here that there is a difference between the percentage fall of the two assets. Since the last couple of years, the confluence between GBTC and Bitcoin price seems to have held during a bull run, while it seems to be front running the bears.

GBTC Vs. BTC Price Comparison from 15th September 2018

The VWAP (Volume Weighted Average Price) is the average price of an asset based on the PA (Price Action) and volume traded in the stipulated time period.

Calculation of VWAP (Source)

Understanding VWAP and VWAP Ratio

VWAP is the average price as described in the equation above. The VWAP ratio, on the other hand, is the ratio between the VWAP and Price. Hence, calculating how many times more or less, the market value is priced above the average price paid over the stipulated time period. In a continued bullish market, people will be inclined towards paying a higher value, and in a bear market stops and exists are bound to happen at lows.

Leading on-chain analyst Willy Woo who has added the chart on his website with the help of @icoexplorer and @coinmetrics noted,

With VWAP we can get trade signals over shorter timeframes, for example, here’s the 90-day VWAP Ratio for medium-term swing trades over monthly timeframes.

The 90-day average, shown below can be effectively used for swing trades in Bitcoin [BTC]. The method to identify the signal is looking for rejection at 1. In a bullish scenario, the ratio rejects values below 1 and the opposite in a bearish trend.

Bitcoin [BTC] Price with VWAP Ratio (90 Day Average) (Source: Woobull)
Moreover, the 30-day average can be used to short term swing trades, notice how the ratio moves above or below the 1-mark in shorter time-frames as well.

Bitcoin VWAP Ratio (30 days average) (Source: Woobull)

Nivesh

Hello, I am an Electrical Engineer currently pursuing Actuarial studies. I work as an analyst reporter for CoinGape. Here to share my knowledge and observation of the crypto space. Feel free to contact!

Leave a Reply

Your email address will not be published. Required fields are marked *